Louisiana’s homeowners insurance market unraveling under the weight of 600,000 claims

Failed insurance companies. Multi-billion dollar losses. Consumers on edge.

Sound familiar?

The last two years have dealt a punishing blow to Louisiana's homeowners insurance market, much like the wave of hurricanes that rocked the Gulf Coast more than a decade ago. Hurricanes Laura, Delta, Zeta and Ida have spawned hundreds of thousands of claims. Bruised by steep losses, some companies in the already-frail insurance market are now in retreat.

It's the latest sign of a deepening crisis taking shape once again in Louisiana, where the legacy of Hurricane Katrina and other storms still looms large. As big national insurers pulled out of coastal areas in the southeast, homeowners increasingly relied on less-regulated regional insurance providers to make them whole in case of catastrophe. Now, even some of those companies — once willing to make a risky bet — are leaving.

Katrina remains easily the largest storm-related insurance event in the state's history. It triggered some 725,000 claims and $25.5 billion in losses, according to the Louisiana Department of Insurance.

But the four storms that made landfall since August 2020, taken together, have generated damage on a similar if smaller scale — about 600,000 residential property claims alone and a respective $9.4 billion in losses so far, according to the most recent data collected by the LDI from insurance companies. The data only captures wind, hail and fire policies and do not include flood insurance claims.

The figures show an astonishingly broad swath of damage over the last 20 months, encompassing nearly all of coastal Louisiana, from the Mississippi line to Texas.

In Calcasieu Parish, nearly three out of every four occupied homes filed an insurance claim after Hurricane Laura, according to a Times-Picayune analysis of state and census data. One in four filed claims again less than two months later after Delta made landfall about 10 miles west of where Laura came ashore.

The active storm season capped off with Zeta rolling over the New Orleans metro area, leaving behind more than 45,000 claims, largely across the region's seven parishes.

In 2021, Ida delivered the biggest gut punch of all: a total of 339,000 claims and $4.6 billion in insured losses, state data shows.

Failures not 'anomalies'

The flurry of storms was too much for some insurance companies to bear. The Department of Insurance has already seized control of three firms because they could not afford to pay claims.

"I wish I could say I thought they were anomalies, but I don't," said Insurance Commissioner Jim Donelon. He said a fourth insurer that's in dire financial straits will likely be placed under the care of the Louisiana Insurance Guaranty Association.

In the years since the catastrophic storms of 2005, the homeowners insurance market for coastal Louisiana has been propped up by a number of companies who were lured to the state.

These firms are a fraction of the size of a company like State Farm, and live or die based on the amount of reinsurance — insurance for insurers — that they have to back up the policies they write in risky areas. They're also known as non-admitted companies, which means their rates are not regulated by the state, and they can charge as much as they want.

Donelon said attracting these companies, mostly from Florida, has been the best way to ensure that homeowners had options to buy coverage outside of Louisiana Citizens, the state-run insurer of last resort.

"Those companies are small, they are regional, and the only way that they can take on that exposure that primarily national companies don't want is by reinsuring themselves up to their chin," Donelon said.

"We were successful (in attracting them), but some of those companies miscalculated their risk. All four (companies) would have been fine if it was just Laura, Delta and Zeta. But Ida, on top of those three, broke their backs, because they were inadequately reinsured."

And the shakeout isn't over yet.

Demotech, a ratings agency for insurance companies, withdrew the "A" level rating for two Louisiana insurers on March 29. Lighthouse Property Insurance Corporation and Lighthouse Excalibur Insurance Company held about 1% and 3% of the market, respectively, according to state data.

The ratings agency said in a brief statement that although the companies received an injection of cash late last year, it wasn't enough to sustain the top-tier rating the industry uses to gauge a company's financial stability. Without it, the firm would be a pariah in the eyes of banks and other lenders.

Market 'in crisis'

A spokesman for the LDI declined to comment Friday on whether the firms would be added to the growing list of insolvent insurance companies in state receivership. The landscape does not inspire confidence among some insiders.

"I would say our property insurance market is in crisis," said Jeff Albright, CEO of the Independent Insurance Agents and Brokers of Louisiana. "The sad part of it is we're reliant on these small, thinly capitalized companies instead of having large national carriers that have lots of assets and can weather the big storms."

Donelon said five companies have withdrawn entirely from the state and another five or six have stopped writing policies. As a result, Donelon said he expects the number of policies under Louisiana Citizens to double this year as the state launches headlong into another hurricane season.

In the years before Katrina, Louisiana Citizens grew to become the third-largest insurance provider in the state, overseeing some 173,000 policies and about 10% of the market. By the time Laura struck in 2020, that number was down to 35,000 by comparison — about 0.5% of the total market, Donelon said.

The response, at least in the short run, has been to force insurers to buy more reinsurance in the future. Bills in the state Legislature would raise the amount of cash insurance companies must have on hand up to $5 million by 2026; and up to $10 million by 2031.

Even though the industry is taking a beating right now, Donelon said he's optimistic things will turn around. It's nothing like what the state faced — and eventually emerged from — after Katrina, he said.

"Because of our success then, I am totally confident that we will be able to rebuild our market and do it with lessons learned from the past two hurricane seasons," he said. "(It starts) with the effort to increase the capital requirements for these smaller companies that will be anxious to fill the void."